Major Currency Pairs Analysis: August 22, 2012

The 17-nation shared currency strengthened against its US major counterpart. It surged to 1 percent against the greenback on the second trading day of this week touching $1.2487, a six-week high. It was strengthened amid several factors, primarily due to optimistic view of traders and investors that the sovereign debt crisis will be finally contained.

Secondarily, Spanish treasury department managed to sell slightly more bills than being planned. A senior lawmaker with German Chancellor Angela Merkel’s party said concessions are possible for Greece as long as its Premier Antonis Samaras will continue to show willingness meeting the main targets, in other words the austerity measures implemented along with the bailout programs. Premier Samaras is scheduled to travel in Berlin on 24th of August and in Paris on 25th of the same month. Before that, he is scheduled to meet Luxemburg Prime Minister Jean-Claude Juncker, the leader of the euro-area finance ministers, and to discuss his request for a two-year extension to the indebted sovereign’s fiscal adjustment program.

Meanwhile, Spain sold 4.5 billion euros or $5.6 billion of 364-days and 546-days bill with 3.07 percent average yield on one year securities down from 3.92 percent in the previous auction on 17th of July. The eighteen-month-bill was placed under 3.34 percent as yield down from 4.24 percent last July. The treasury department was projected to sell 3.5 billion euros worth of bills. However, uncertainties remain very high and the euro is still on the brink of sell-off.
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GBP/USD
The US dollar pulled back as well against British pound. It weakened even before the economic news in UK was release. It slumped to $1.5803 per sterling, to a three-month low from a high of $1.5705 after UK’s public sector net borrowing, excluding the temporary effects of financial interventions, increased in the month of July, data from the Office for National Statistics revealed.

Net borrowing was GBP 0.6 billion in July which was GBP 3.4 billion higher than in July last year when PSNB was GBP -2.8 billion. It projected to decline to GBP 2.7 sterling. Despite worst-than-expected Industrial orders, the pound was able to strengthen against greenback. About 15 percent of respondents reported that total order books were above normal in August while 36 percent said they were below normal. As a result, balance of -21 percent was steeply lower than -6 percent recorded in the month of July and marked as the lowest return since December 2011.

At the same time, manufacturers' expect their output over the course of the next three months to be flat, following two previous surveys in which they expected output to increase. "Overall demand for manufactured goods has eased back this month, led by a weakening in the consumer goods sector following a strong July figure.“ The economic environment for UK manufacturers’ remains challenging with domestic demand relatively muted and the ongoing eurozone crisis now seeming to drag on broader global economic momentum, CBI Head of Economic Analysis Anna Leach said.
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USD/JPY
Japanese and Australian stock futures were little changed as Germany’s Bundesbank stepped up its criticism of the European Central Bank’s bond-buying program, tempering investors’ hopes for more stimuli. American Depositary Receipts of Canon Inc., a camera maker that gets a third of sales in Europe, slid 0.3 percent from the closing price in Tokyo. Amcor Ltd., the world’s No. 1 packaging company by market value, may fall in Sydney after profit missed estimates. Hitachi Ltd., a Japanese electronics manufacturer that counts Apple Inc. among its suppliers, may be active after the iPhone maker set a U.S. record for market value.

Futures on Japan’s Nikkei 225 Stock Average expiring next month closed at 9,190 in Chicago up from 9,170 in Osaka, Japan. They were bid in the pre-market at 9,190 in Osaka at 8:05 a.m. local time. Meanwhile, Bank of Japan Deputy Governor Kiyohiko Nishimura said on Tuesday that China is now entering the "danger zone," citing a combination of demographic change, a property price bubble and a steep loan growth, which increases the risk of financial crisis in a country. Speaking at the Reserve Bank of Australia-BIS Research Conference in Sydney, Nishimura said not every bubble-bust leads to a financial crisis and not every country experiencing demographic changes has a malign property bubble.
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USD/CAD
Canada’s dollar weakened from an almost four-month high versus its U.S. counterpart after a decline in equities increased investor risk aversion, prompting investors to sell higher-returning currencies. It had appreciated to the highest level since 3rd of May as oil gained and stocks rose amid speculation Europe’s debt crisis won’t worsen. The loonie declined 0.08 percent to 98.92 cents per U.S. dollar at 5 p.m. in Toronto. It touched 98.43 cents, the strongest since 3rd of May. One Canadian dollar buys $1.0109. It continued to drop after country’s wholesale sales slightly declined in the month of June after a four-month-increase.

The decline was largely due to a drop in the agricultural supplies industry, a 20.5 percent decrease, Statistics Canada said. Wholesale sales were down 0.1 per cent in June to $49.9 billion. Over-all, 4 out of 5 industries sales were down within the miscellaneous subsector. Excluding the miscellaneous subsector, wholesale sales rose 0.9 per cent in June though. The motor vehicle and parts subsector was up 2.2 percent while sales in the machinery, equipment and supplies subsector rose by 1.3 per cent in June. Respectively, food, beverage, and tobacco subsector was also up 0.3 percent in June.
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